January 2017

FINANCIAL
Saving for College:
529 Savings Plans
by Glenn R. Swift
There are four plans available
to you, all with specific tax
advantages: 529 Savings Plans,
529 Prepaid Tuition Plans,
Coverdell Education Savings
Accounts, and Uniform Gift to
Minors Act accounts. Let’s begin
by looking at the 529 Savings
Plan.
The value of a college education has never
been greater. In fact, a study by the Pew
Research Center released in February
2014 showed that the earnings gap
between young adults with and
without bachelor’s degrees has
stretched to its widest level in nearly
half a century.
Of course, you’ve also heard
that “college tuition has been
rising faster than the rate of
inflation” for about as long
as you can remember. So, the
message should be clear—start
saving as early as you can.
Even modest amounts of money invested
prudently can make a considerable
difference down the road. Then again,
the really good news is that saving for a
college education is so important that the
government is going to help you do it.
Named after Section 529 of the Internal
Revenue Code and legally referred to as
a Qualified Tuition Plan, these plans are
sponsored by the various states (every
state except Washington has at least one)
and managed by financial institutions
specifically approved by the state for this
purpose. Generally speaking, they work like an
IRA or 401(k) retirement account. Cash
contributions are made to an individual
account established and managed
for a named beneficiary. Funds
available for higher education
expenses depend upon the amounts
contributed and the investment
performance of the account.
You should bear in mind that neither
the account owner nor the beneficiary
is allowed to direct the investments in
a 529 Savings Plan. However, account
owners are permitted to choose among a
number of broad investment strategies
established by the program sponsor.
Generally, a change in investment
strategy is permitted at least once a
year or if a new beneficiary is named.
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JANUARY 2017